Hello Fintech Friends,

Welcome to another exciting week of fintech updates. This week, we bring you the latest developments in our staple topics: crypto regulation, enforcement, central bank digital currencies (CBDCs), and the Consumer Finance Protection Bureau (CFPB). We take you on a journey across different continents as we explore the evolving landscape of crypto regulation in the U.S., UK, EU, and Asia. And we present the second installment of a four-part guest contribution series on open banking by the Policy Edition’s esteemed friend Phil Chang from Method Financial.

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1. Crypto Regulation

Last week, Fortune reported that Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) are poised to reintroduce their crypto legislation, the Responsible Financial Innovation Act, in the near future. This bill, which was first introduced in June 2022, is the most comprehensive crypto bill in the U.S. to date and differs significantly from the Market Structure bill put forth by the Republican-led House Financial Services and Agriculture Committees. At the state level, the Massachusetts Senate will hold a series of landmark hearings on July 13 to address crucial bills that will shape the state's approach to digital technology, blockchain, and cryptocurrency. Of particular interest is the "Act creating a pilot program to explore digital innovation in government," which proposes a pioneering initiative by the Massachusetts Technology Collaborative to explore the secure storage and accessibility of real property records through blockchain technology.

In the UK, the Financial Conduct Authority (FCA) announced that crypto firms will have four "legal routes" to comply with the upcoming rules on digital asset promotion. These options are (1) publishing promotions through an authorized person, (2) obtaining approval from an authorized person, (3) communicating promotions through a registered crypto firm under UK money laundering regulations, or (4) utilizing the exemption provided by the Financial Promotion Order of the Financial Services and Markets Act. In the realm of lawmaking, the House of Lords approved the Economic Crime and Corporate Transparency Bill, which will grant authorities enhanced powers to seize properties and freeze cryptocurrencies involved in criminal activities. Similarly, the European Council approved a new legislation explicitly covering cryptocurrencies, which will empower authorities to seize assets without proof of their legal acquisition or when owners are linked to criminal organizations. Meanwhile, the Law Commission of England and Wales recommended the creation of a new property category for digital assets, arguing that their unique characteristics differentiate them from tangible assets like real estate and rights-based assets such as debts or securities.

Moving to Asia, the Monetary Authority of Singapore (MAS) recently issued a directive mandating cryptocurrency platforms to store client funds in a trust and imposing restrictions on the lending and staking of tokens for retail customers. The Thai Securities and Exchange Commission (SEC) has introduced similar guidelines, banning digital asset business operators from offering custodian services with returns to all depositors, including staking and lending. And in South Korea, following the enactment of the "Act on the Protection of Users of Virtual Assets," the Financial Services Commission (FSC) convened a digital asset private joint task force working group meeting, which focused on outlining a second-stage legislation that will aim to establish a robust institutional framework for virtual assets.

2. Enforcement

Crypto giant Ripple is once again entangled in a legal battle concerning the classification of its token, XRP, as a security. Recently, a class of investors in Ripple Labs Inc. achieved certification in a cryptocurrency securities lawsuit against the company, its CEO, and its subsidiary XRP II. The ruling by Judge Phyllis J. Hamilton, presiding over the case at the US District Court for the Northern District of California, confirmed that the four prerequisites for class certification had been satisfied.

In other news, Gemini, a prominent crypto trust firm, filed a lawsuit against Digital Currency Group (DCG) on Friday, alleging "fraud" committed by DCG and its founder Barry Silbert through their subsidiary Genesis. The lawsuit claims that Genesis, which held funds for Gemini related to the latter's Earn program, engaged in questionable practices. As part of the partnership between Gemini and Genesis, customers were offered the opportunity to earn up to 7.4% in annual percentage yield. Funds from Gemini were sent to Genesis, which then loaned them to entities such as Three Arrows Capital, which has since ceased operations.

3. CBDCs

The Federal Reserve Bank of New York's New York Innovation Center (NYIC) has released the results of a proof of concept (PoC) study that was conducted in collaboration with U.S. financial institutions and focused on the viability of a distributed ledger backed by a wholesale CBDC. The project, known as the regulated liability network, simulated domestic and cross-border transactions involving various types of regulated digital assets.

4. CFPB

In a letter addressed to CFPB Director Rohit Chopra, Chairman of the Senate Banking Committee Sherrod Brown (D-OH) and several Democratic members expressed their "deep concerns" regarding the potential exploitation of voice cloning technology by fraudsters. The letter cautioned that voice cloning could be misused to mimic "trusted voices" for fraudulent purposes, including financial scams, and urged the CFPB to address this “emerging threat.”

5. Open Banking (from our guest contributor, Phil Chang, General Counsel of Method Financial)

SCOTUS’s decision to strike down the Biden Administration’s plan to forgive around $400 billion in federal student loans potentially increased the use of open banking by millions of affected borrowers who may seek to refinance their loans. In 2019, the government collected $22.4 billion in interest on the then ~$1.5 trillion dollars in outstanding federal student loans. But since 2020, payments and interest on those loans have been suspended due to COVID. Those payments are set to resume this October.

Through consumer-permissioned direct access to student loan and other financial data, open banking can encourage and help borrowers get better repayment terms—like lower APRs and late fees—by dramatically reducing the friction and time it takes to refinance. This can be especially helpful for borrowers with federal graduate or Direct PLUS loans, which charge higher APRs than federal undergraduate loans.

This can also be helpful for the ~18% of student borrowers who are behind on their loan payments. A large segment of these borrowers tend to have lower earning power, making repayment difficult. And many of these borrowers may overlap with the unbanked and underbanked, who, as we’ll discuss next week, can benefit from open banking through increased credit access and better terms.

Join me in conversation on Twitter or LinkedIn or leave a comment below.

See you next week!